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How Will AuRico Handle Plunging Gold Prices?

The gold miner faces a tough challenge the drop in precious metals.

On Thursday, AuRico Gold (NYSE:AUQ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Gold-mining stocks have been hammered for a long time, and the recent plunge in gold prices certainly hasn't helped AuRico or its peers. But AuRico is also facing some other difficult issues of its own. Let's take an early look at what's been happening with AuRico Gold over the past quarter and what we're likely to see in its quarterly report.

Stats on AuRico Gold

Analyst EPS Estimate

$0.05

Change From Year-Ago EPS

(58%)

Revenue Estimate

$60.3 million

Change From Year-Ago Revenue

(46%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

How will AuRico Gold's earnings fare?Analysts have slashed their view on AuRico Gold's earnings, cutting their first-quarter estimates by more than half and slashing $0.15 per share from their full-year 2013 expectations. The stock has also performed dreadfully, falling nearly 30% since the end of January.

AuRico has already given investors a sense of what the first quarter will look like in its preliminary operational results. Total cash costs of $633 per ounce were near the upper end of the company's guidance for the full year, but the company expects that rising production at its flagship Young-Davidson mine should help bring costs down later in the year.

Nevertheless, AuRico still faces a disadvantage compared to some of its mining peers. Yamana Gold (NYSE:AUY) and Goldcorp (NYSE:GG) have been able to use extensive metal-byproduct sales to reduce their cash costs substantially, and even using an all-in cost measure, AuRico lags behind. Where AuRico could potentially excel compared to Yamana and Goldcorp is in production growth, especially as Young-Davidson comes full on line.

AuRico also faces a transition at the top of its leadership structure, as executive chairman Colin Benner had to take a leave of absence. The stock didn't react to the move, but given the company's struggles, AuRico will want to make sure lead director Ron Smith, who will assume Benner's responsibilities at least temporarily, takes up the leadership mantle appropriately.

One thing investors were able to celebrate was AuRico's first dividend payment, which paid $0.04 per share to shareholders in April. With expectations of paying 20% of operating cash flow in dividends, AuRico will need to keep its cash flows up if it wants to sustain that payout going forward.

In AuRico's quarterly report, watch for guidance on the company's future strategy now that it has divested itself of its Ocampo and El Cubo mines in Mexico. With Endeavour Silver (NYSE:EXK) having reported improved gold and silver production from El Cubo during the first quarter, AuRico investors need to feel confident that AuRico's vision for the future is sound.

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Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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